UPDATED with closing stock price. Three Wall Street analysts offered positive sentiments Thursday about the prospects for Cinemark, the No. 3 U.S. exhibitor, after it outlined plans to reopen movie theaters in the midst of the COVID-19 pandemic.
Executives’ comments during a conference call with analysts Wednesday included an upbeat outlook for Warner Bros.’ Tenet, which is scheduled for July 17, followed by other studio releases in subsequent weeks. Cinemark’s quarterly results fell short of estimates, but the company’s footprint, which is largely outside of areas hit hardest by the pandemic, as well as its management approach offer reason for optimism.
Cinemark shares gained more than 2% Thursday to close at $16.72. Apart from one session last week above $17, the stock has reached its highest point since theaters closed in mid-March.
Exhibition, like other business sectors, remains under a cloud of uncertainty as cities and health experts chart a path forward in the absence of a COVID-19 vaccine or treatment. AMC, the No. 1 theater chain, released a far more dire first-quarter report than Cinemark’s, offering preliminary quarterly numbers expressing doubt about its ability to stave off bankruptcy. The highly leveraged company will address investors on Tuesday during a conference call to discuss its quarterly numbers and the state of its business.
The most bullish analyst take on Cinemark came from Eric Handler of MKM Partners, who has a “buy” rating on its shares and raised his 12-month price target to $21 from $19. “We believe Cinemark’s business prospects are heading in the right direction,” he wrote in a note to clients. “We recognize it will take time for the industry to regain its footing (potentially not returning to normalized levels until 2022), but are happy for the pending revenue restart.”
Eric Wold of B. Riley also raised his price target on Cinemark shares to $16 from $13, but maintained his neutral rating on the stock and lowered financial targets slightly. “We remain concerned with initial movie-going trends as the theaters begin to reopen as well as the ultimate film slate,” he wrote, “and we prefer to remain on the sidelines until visibility into both issues improves.”
Despite the positive view of Tenet from theater owners and Warner Bros., Wold added, “The next few weeks would be key to gauging that commitment as advertising and marketing for the film kicks into high gear. With the uncertain reopening dates for some major U.S. markets, we continue to believe the film slate [for the second half of 2020] should be considered in flux.”
Robert Fishman of MoffettNathanson, who sounded a warning on Monday in a research note calling the traditional theatrical release window “unaffordable” for media companies, has a mixed view on Cinemark. He summed up his sentiments in the headline of his note to clients: “Cinemark: Doing What They Can.” In the note, he reiterated his neutral rating on shares with a $17 price target.
“In an industry with some aggressive (and undisciplined) M&A history, Cinemark historically has been the most disciplined and conservatively run theater operator,” Fishman wrote. “This allowed the company to react to this pandemic in a position of relative strength, as Cinemark’s peers appear to be less secured for these challenging times.”
Fishman underscored uncertainty about how “secular challenges will impact U.S. movie attendance and we will continue to assess the lasting impact of movie theater closures on theatrical windowing strategies and consumer behavior.”
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